Starting a small business is a long sought-after dream for many Americans. Unfortunately, for half of those who pursue that dream, the ending isn't a happy one (click here to download statistics from the U.S. Small Business Association).
Businesses can fail for a number of different reasons, but in many cases a simple lack of preparation is to blame.
"We often don't know what it takes to start a business, and there are so many things to know," said Eric Roberge, a certified financial planner and founder Beyond Your Hammock.
"Oftentimes, we look at all these questions and feel so overwhelmed that we take no action," he added. "This is the worst place to be, and it's why many businesses fail."
Financial experts, who also happen to be business owners, weigh in on 10 steps to help you prep before launching a business.
1. Talk to a tax expert. Vincent R. Barbera, a CFP and managing partner with Newbridge Wealth Management, said that when he launched his RIA firm two years ago, one of the biggest surprises was taxes.
"I purchased an asset to start my business, and it was taxed differently than I thought," he said. "I thought I could use it to reduce my gross income, but I couldn't.
"So my net income was higher than anticipated."
That's why, Barbera said, it's essential to work with an accountant before getting started, to understand the ramifications of all transactions. A good CPA can also make life a lot easier, assisting with the tax forms, filings and payroll, as well as other complicated issues.
2. Don't discount the little things. Another element Barbera hadn't accounted for was the importance of the little things, such as envelopes, letterheads, business cards and technology needs, such as Wi-Fi, servers, printers and software.
"Think about your business from the administrator's perspective," he said, and ask yourself what you need each day to get the job done. And don't forget to account for these costs, as well — they're often more significant than you think.
Liquidity is the biggest factor for individuals, as they sometimes do not correctly forecast how much it will cost to keep the lights on and pay their staff.Thomas W. Balcomfounder of 1650 Wealth Management
Barbera suggests looking for discounts by leveraging your relationships. For instance, the company he rents his office space from offers discounts at Staples, and a professional association he belongs to offers deals with the National Purchasing Program.
3. Maximize your liquidity. "Liquidity is the biggest factor for individuals, as they sometimes do not correctly forecast how much it will cost to keep the lights on and pay their staff," said Thomas W. Balcom, a CFP and founder of 1650 Wealth Management.
It's important to have detailed calculations to ensure you have the reserves to start your business and keep it running — even in the wake of delays or unforeseen events.
Some experts advise taking out a Home Equity Line of Credit (HELOC) in case it's needed for an emergency; others say, however, that using that money is risky unless you're certain you can pay it back in a reasonable amount of time.
4. Figure out your funding. One of the big decisions aspiring business owners need to make is how to fund the business. According to Roberge at Beyond Your Hammock, loans should be a last resort.
"If you have the savings and you don't have to rely on an outside party or pay interest on a loan, then you may be better off using your own investments," he said.
If taking out a loan is your only option, Roberge noted, make sure you know you can repay it and that you have a plan in place to do so. "Someone who takes out a loan and hopes for the best is someone who should stay away from loans," he said.
5. Get online. It may be surprising that in this Internet-centric age, 55 percent of small businesses don't have a website, according to a study by Google and Ipsos. According to Barbera at Newbridge Wealth Management, businesses that don't have an online presence are making a big mistake.
"In the service business, our website is our storefront," he said. "So it is essential that we communicate our message and our services clearly through that medium.
"Future consumers/clients want to know if you can solve their problems and also want to get a feel of what it would be like to work with you."
6. Consider your health. Starting a business often means quitting a full-time job and forfeiting perks such as health insurance. If this is the case, figure out your options before you quit.
"Compare Cobra insurance to policies available on the health exchange," said Kevin Reardon, a CFP and president of Shakespeare Wealth Management.
"Be aware that open enrollment is in November each year," he added. "If your Cobra runs out early in the year, you'll be without health coverage until November."
Also, remember that if you have 50 or more full-time employees, you're required to offer health coverage or risk being subject to the Employer Shared Responsibility payment.
7. Insure yourself. Life and disability insurance are other group benefits you may give up along with your job, which is why Reardon said it's also important to consider whether you need to replace those when you go out on your own. If so, he advises you do that before you quit.
8. Plan for retirement. When it comes to saving for retirement, business owners have some good options, including traditional individual retirement accounts, Roth IRAs, solo 401(k) plans and SEP IRAs. It's important to research each option to determine which is the best vehicle for you. If you have full-time employees, you also need to decide whether to offer it to them, as well.
9. Determine your corporate structure. Determining the right corporate structure for a business can be a complicated, as each structure has different costs, liability protections and tax ramifications. That's why experts advise consulting with a CPA or business attorney to figure out the right one for your business.
10. Don't overcommit. When starting a business, said Barbera at Newbridge Wealth Management, don't take on too much too quickly. "Not overcommitting to a rent with space that we may not have needed was the best business decision that we made," he said.
Instead, Barbera opted for a year-to-year annual contract with an office-space provider; they continue to reevaluate their needs as the business grows.
Starting a business isn't easy, but taking the right steps in the beginning can go a long way in establishing a company that can go the distance.
— By Jennifer Woods, special to CNBC.com
